When Katrina’s music stops – the player without a chair

Other than the add-on that keeps bright blue text below the surface (usually), SLABBED is pretty much a “standard package” with the capacity to collect data on a fairly basic set indicators.

Our data come without the context needed for us to know much more than someone is reading; and, as long as we know that, we are content taken’ it as it comes.  However, I do confess to having occasional thoughts about those who come at times and from places where most are sleeping, most often wondering if they’re burdened but fearful.

I’ve thought more about those with sleepless nights since reading the Insurance Adjuster’s Dilemma: Tell the Truth and Face the Consequences by Raising Claim Practice Misconduct

The classic example is the civil prosecution of the Rigsby sisters. They told a story of a State Farm adjuster holding numerous reports which were not being sent to policyholders but were “revised.” The revised reports were always worse for the policyholders because they allowed for State Farm to deny claims. Had their story stopped there, they would have been terminated. But their actions went further with Dickie Scruggs, and the rest has been fodder for demeaning posts by the insurance industry.

When Katrina’s music stops playing this song, there will be a player without a chair – and, who that might be is something I’ve thought more about since reading about the arrangement between the WYO companies and FEMA.

H. Referral of Criminal and Civil Misconduct
Fraudulent activities undertaken in connection with NFIP flood insurance policies administered by a WYO Company constitute fraud against the Federal government and subject the perpetrator to a range of criminal and civil penalties under Federal criminal and civil anti-fraud statutes, including the False Claims Act, 31 U.S.C. §3729. (page 9-10,  Guide for WYO Legal Counsel)

If the Guide for WYO Counsel stopped there, it would be a different matter; but, it does not.  Instead it goes on:

…The WYO Company’s counsel must immediately forward any information that suggests possible criminal or fraudulent behavior to their OGC contact. If necessary, the attorney and/or WYO Company may be required to submit supporting information regarding the misconduct. In the event WYO counsel is called upon to prepare and gather such information, the costs will be reimbursed as NFIP legal expenses.

On one hand, this suggests a WYO company’s own counsel has a responsibility to report information suggesting possible criminal or fraudulent behavior of his/her employer.  On the other hand, this language gives a WYO company a powerful tool – one it can misuse and keep  its own counsel, employees, contractors, and policyholders in line.

I thought of that as I read Rossmiller’s post on the Fifth Circuit’s Opinion in Kodrin v State Farm.

Their claim was belied by their acceptance of the policy limits of their flood insurance.  I don’t say this to be a smart alec, but rather because I wonder about this flood payment in Kodrin and a number of other instances: did they give the flood money back or did they keep it? I ask this because the choice before the jury was all wind or all flood, and the jury found all wind. So what happened to the federal flood money?

In the words of a former commenter, my interest in the comment was because I, too, wanna know just what happened to the federal flood money.  I do know that what happened and what should have happened are not necessarily the same; and, for that distinction we turn, first, to Gagne v State Farm.

As you may recall, Gagne v State Farm settled before going to trial.  Unlike cases that go to trial and set precedent for others, most settled cases leave only the footprint a case was filed.  Gagne v State Farm, however, was an exception.  Instead of footprints, it left tracks for others to follow – tracks that are most evident in State Farm’s Response to Gagne’s Motion to Reconsider Rulings in Prior Cases on the Effect of Insured’s Cashing Checks Offered by State Farm and Drawn on Federal Flood Insurance Funds.

First, look at the premise of Gagne’s Motion.

In some recent Hurricane Katrina insurance cases, this court has made statements and rulings indicating that where plaintiffs have been paid flood insurance benefits, they may be estopped from denying that their insured property was damaged by storm surge to the extent of the amount of the flood benefits paid. This court has said this estoppel is based on the fact that receipt of flood insurance benefits constitutes an admission that some damage was caused to their homes by flooding…

Gagné does not believe that the plaintiffs in the cases involving the prior rulings on this point have brought to the court’s attention the appropriate law regarding the prerequisites for either precluding a party from taking a  particular position or offering evidence in support of that position under the law concerning either judicial admissions or judicial estoppel nor have they had such compelling factual testimony including an admission by State Farm’s flood adjuster.

Next, review this summary of State Farm’s Response.

This Court, Judge Ozerden, and other judges in Hurricane Katrina cases have repeatedly held that receiving and retaining flood insurance payments establishes that the property sustained flood damage at least corresponding to the amount of the payments. As discussed below, this Court’s opinions on this issue are correct and accord with the opinions of Judge Ozerden and the overwhelming majority of other judges who have addressed the issue…Numerous decisions by this Court reinforce this fundamental principle in Hurricane Katrina litigation, which stems from the common sense notion that “the claimant may recover under all available coverages provided that there is no double recovery…”Thus, to the extent subrogation applies here at all – and it does not – State Farm is already a party to this case. In short, the text of the subrogation clause, the regulations supporting the NFIP, and common sense compel rejection of the subrogation theory asserted by Plaintiff.

Common sense? Common sense would require a specific regulation stating acceptance of a flood payment is an admission of flood damage.  However, there is no such regulation.

In fact, the regulations actually have specific provisions for balancing the account of a WYO insurance company that allow adjusting for underpayment or overpayment as needed.

What the regulations do say is that if NFIP funds are used to pay for damage covered under another policy, the rights of the policyholder are subrogated to those of the government in that amount.

Nonetheless, State Farm’s reference to Judge Ozerden was the first time I recalled hearing his name in conjunction with a Katrina insurance dispute.

Judge Ozerden is also in accord with this Court’s well-settled precedent on the matter. Judge Ozerden held in a recent Hurricane Katrina case that “Plaintiffs’ receipt of flood insurance benefits constitutes an admission that flood damage occurred,” at a minimum, “‘to the extent of the amount paid and accepted.'” Fowler v. State Farm Fire & Cas. Co.

Judge Ozerden did write something similar; but, he did not write “well-settled precedent on the matter”.  I pulled his Order and verified exactly what he  said:

State Farm requests exclusion of any testimony or evidence, in the form of expert opinions or otherwise, to the effect that Plaintiffs’ residence was completely destroyed by the force of wind during Hurricane Katrina. State Farm contends that Plaintiffs were paid and accepted policy limits in the amount of $134,100.00 under their flood insurance policy for their dwelling, and $24,500.00 under that policy for its contents. Plaintiffs do not dispute that they accepted these payments.

“Once an insurance payment is made and accepted, this act establishes, as an admission by both the insurer and the insured, that the insured’s losses were caused by an event covered by the policy under which the payment is made, at least to the extent of the amount paid and accepted.” See Robichaux v. Nationwide Mut. Ins. Co., 2007 WL 2783325, *3 (S.D. Miss. Sept. 21, 2007). Because Plaintiffs’receipt of flood insurance benefits constitutes an admission that flood damage occurred, the Court is of the opinion that, consistent with other opinions of this Court, Plaintiffs are precluded from denying that at least the amount of damage represented by the flood insurance payments was caused by flooding.

However, while I was there, I also pulled the Plaintiff’s Consolidated Response to State Farm’s Motions in Limine;  and, there I found what State Farm didn’t say when referencing the Fowler record in response to Gagne’s Motion – the Fowler plaintiffs did not claim their residence was completely destroyed by force of wind!

The principle living areas of Plaintiffs’ home, the two floors located on pilings, were destroyed by hurricane force winds and wind-driven debris prior to the arrival of storm surge.

Plaintiffs accepted proceeds tendered under the National Flood Insurance Program for damage their home sustained to the finished areas located on the first of three levels, not for damage to the home’s principle living areas. Damage to the first level occurred after Hurricane Katrina’s winds destroyed the home’s top two floors located on pilings.

The National Flood Insurance Program proceeds Plaintiffs accepted were for damage to their home’s finished outdoor living areas, including a finished living room, bedroom, bathroom, and storage closet along with its contents, all located on the first-level.

The home’s principle living areas -located on the second and third floor were destroyed by Hurricane Katrina’s winds before the arrival of tidal surge. State Farm can argue its position to the jury, but its Motion in Limine should be denied.

Why Judge Ozerden failed to make that point, I do not know.  What I do know is that he cited no law to support his decision, only the related ruling in another case in the District’s Court.

What I also know is that the Response of the Plaintiffs is one very interesting document – interesting in what it  no longer says about Lecky King and Ed Rust with some of the information redacted and also interesting in what is does say about Mr. Fowler.

Although Mr. Fowler will not be testifying as an expert legal Witness, he certainly can testify that fraud occurred in this case and how it occurred.

So, naturally, I had to find out why the Plaintiff could be an expert legal witness, testifying or not, and googled George Fowler – speaking of settled cases leaving tracks, Fowler v State Farm left some big ones, Gagne v State Farm filled some in. Where do they lead?

Who will be left without a chair when Katrina’s music stops?  That we have to wait to find out; but, it’s coming.

Music is your only friend
Until the end…

When the music’s over
Turn out the lights


18 thoughts on “When Katrina’s music stops – the player without a chair”

  1. Now your emails make sense to me Nowdy! I know George Fowler, he is the public face of and one of the main pillars of the Cuban-American community in New Orleans.

    Excellent work!


  2. Well, I believe he got on Ed Rust’s nerves, Sop! Excellent and interesting work but it must feel like having an 18 wheeler bearing down on you while you’re riding your bike.

  3. Rossmiller cannot be serious, right?

    The policyholder (1) relies upon an entity with an inherent conflict of interest, a conflict of interest that is unbenownst to the policyholder (2) the policyholders are in dire need of money having lost everything they own (3) the policyholder is NEVER given an explanation regarding the source of the funds or why the money is being paid out of the federal treasury as opposed to the insurer’s pocket and (4) if there is an overpayment or misappropriation, the W.Y.O. INSURER MUST PURSUANT TO FEDERAL LAW, reimburse the federal government.

    Yet, the policyholder should give the money back?

    The whole idea of a flood credit is beyond absurd. In light of the pure craziness flowing from the federal courts on the issue, insurers, Lexington for example, are FLAT OUT ADMITTING they purposefully delayed loss adjustment and tendering money in order to see what the insured received from under their flood policy. In my Allstate cases where the insureds’ roofs are severely damaged allowing rain water to enter, Allstate, instead of tendering, subpoenas my clients’ flood claim file.

    Under La. R.S. 22:1973 an insurer must initiate loss adjustment within 30 days of notification of the claim. However, the penalty is basically limited to $5,000.00. Any insurer will gladly pay the $5,000.00 penalty if it means receiving a credit that I have seen be as high $250,000.00.

    You can’t reward the very conduct that constitutes per se bad faith. The end result is confounding and leads to the most absurd result I have ever come across in my years of practicing law.

    Anywho…. I think of the Pink Floyd song “Comfortably Numb” wherein Roger Waters sings “Hello.. Is there anybody out there?”…….

  4. A policyholder can’t collect on more than the value – are you saying something different from that?

    It is strange that courts aren’t asking for proof the insurer has correctly handled the process with NFIP.

  5. The issue isn’t whether or not the policyholder can collect mopre than the replacement cost of their home.

    The issue is defined by the terms of the homeowner’s policy which states nothing about limiting the h/o insurer’s obligation to the difference between what flood paid and the replacement cost.

    The h/o insurer as issuer of an all risks policy has the burden of proving exactly what damage flood waters caused. Thus, there is no “double recovery” because the policies are mutually exclusive.

    In the majority of Katrina cases, all flood loss adjustment principles were tossed out the window. Picture pigs (the h/o insurers) at a trough (the federal treasury).

    Finally, if there theoretically could be a “double recovery”, who should get the windfall? The party that breached its contract in bad faith (the h/o insurer) or the premium paying policyholder who depeleted his patrimony in order to procure the flood insurance? The answer seems obvious to me, but what do I know.

  6. Thanks, Brian, I’ve got a question for you. I believe Gagne and Fowler – and know for sure Payment – were all issued an Offer of Judgment with cases dismissed on an Order of Judgment with each side assuming its own cost.

    Do these judges know FEMA, not insurers, are paying the legal cost?

    These cases are settling – the policyholder is being paid something on the claim. I imagine a good bit in all three of these,

    It says in the WYO legal guide that settlements and so forth have to be approved by the FEMA/HHS legal counsel.

    It doesn’t make sense for the government to be approving Offers of Judgment because of the associated risk to the policyholder or sticking the policyholder with legal expenses when it was the conduct of the government’s contractor in dispute.

    All three of these policyholders appear to be people of means but that’s not the issue – and I doubt any have as much money as the government (did).

    If they refused the offer, went to court and lost, the result would be the policyholder reimbursing FEMA for legal expenses and I definitely haven’t seen that in the regulations for NFIP.

    Does this seem right or am I missing something?

  7. NFIP is not paying the legal costs to defend the insurers’ wind payments or lack thereof. NFIP only pays if the flood claim is the basis of the dispute. None of this should be eligible for federal support of the legal costs.

  8. I believe those cases are eligible for payment but the share is prorated (how funny is that, splitting wind/water after case is in court to get reimbursed for legal fees)

    I’ll find the language I’m talking about and come back and post it in a comment.

    You can see in Fowler case that the issue is lack of wind payment but the motions and so forth deal with NFIP.

  9. It’s not in my easy to get to information but I know I’ve read a regulation about reimbursement in cases where the flood policy and the private wind coverage are both involved.

    I’ll keep looking and post what I find. It’s just not going to be as fast as I’d like.

  10. Here’s what I read, Brian.
    In the event a question arises whether only part of a litigation
    is reimbursable, the FEMA OGC shall make a recommendation to the Administrator about the appropriate division of responsibility, if possible.

    Article III-D(c-)(3) of the Arrangement (following notice of litigation)

  11. I thought you might like this quote and link Nowdy.—

    About a week after Rob Verchick began teaching his fall 2005 environmental law course at Loyola University New Orleans, Hurricane Katrina hit. Before he knew it, he found himself relocated and on the cutting edge of a new legal field.

  12. I am almost certain that the only portion of legal costs that would be covered by NFIP would be to defend a full or partial denial of a flood claim, not any defense of a wind claim denial. Look a few pages earlier in the “Your Right to Sue Us” section of the NFIP regs. The regs make it harder to sue NFIP than to sue the homeowners insurer.

  13. There’s a whole separate pool of lawyers to defend NFIP claims. They really have nothing to do with the WYO companies they defend; FEMA makes the calls on litigation strategy and settlement. These lawyers do not defend any part of the claims under the HO policies and vice versa.

    All legal fees and costs for defending flood claims are paid by the Govt. and all legal fees and costs for the separate HO claims are paid by the insurer. The streams never cross.

  14. Is a homeowner/policyholder going to have to file two separate cases against the same carrier – one for wind and one for flood? When both are involved, who pays?

    “nothing to do with the WYO company they defend” sounds like another FEMA horror story.

  15. No, it’s one lawsuit, but you have to name the company in its capacity as a WYO carrier, and then name the company separately as the HO carrier. Two sets of lawyers then answer on the counts against each entity.

    For example, Gerry Nielsen’s law firm has the market cornered on NFIP defense work here. But his firm is not really answering to the insurane company, rather they take their orders from certain “general adjusters” at FEMA. It’s very different from how insurance companies are defended by their lawyers.

  16. Adding to the confusion, there are two different NFIP legal arrangements. The WYO companies have one and there is another for policies sold directly. If Nielsen takes orders directly from FEMA, he may be working on policies that don’t go through WYO companies…guess he could do both but there’s a slightly different trail to follow.

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